Choosing the right legal structure is the first strategic decision for any foreign investor entering Nepal. The debate around private vs public company in Nepal is not just about ownership or prestige. It directly affects tax exposure, compliance burden, capital planning, and exit flexibility.
Nepal’s corporate tax regime is clear but nuanced. Incentives exist, but only when structures are chosen correctly. Many foreign companies overpay tax or delay approvals due to early structural mistakes.
This guide breaks down private vs public company in Nepal through the lens foreign companies care about most: taxation, compliance, risk, and long-term scalability.
Nepal’s corporate framework is governed by the Companies Act 2063 (2006) and administered by the Office of the Company Registrar.
Foreign investors can establish operations in Nepal using several vehicles, but only two fall under company law.
A private limited company in Nepal is the most common structure for foreign direct investment.
Key legal characteristics include:
Minimum shareholders: 1
Maximum shareholders: 101
No public share issuance
Transfer of shares restricted
Can be fully foreign-owned in permitted sectors
This structure is widely used for IT services, BPOs, consulting, engineering centers, and regional back-offices.
A public limited company is designed for capital-intensive or regulated businesses.
Core features include:
Minimum shareholders: 7
No upper limit on shareholders
Can issue shares to the public
Mandatory statutory disclosures
Often subject to sector regulators
Public companies are common in banking, insurance, hydropower, and infrastructure.
From a tax perspective, Nepal does not discriminate between private and public companies on the headline corporate income tax rate. The difference lies in compliance depth, incentives, audit exposure, and regulatory oversight.
Understanding these layers is critical before incorporation.
Under Nepal’s Income Tax Act 2058 (2002), corporate income tax applies uniformly.
25 percent corporate income tax applies to most companies
Applicable to both private and public companies
Based on net taxable profits
This rate is confirmed annually in the national budget, administered by the Inland Revenue Department.
Certain industries face different rates:
Banks and financial institutions: 30 percent
Telecom companies: 30 percent
Petroleum sector: 30 percent
These higher rates apply regardless of whether the entity is private or public.
The table below highlights practical tax differences, not just statutory rates.
| Criteria | Private Company | Public Company |
|---|---|---|
| Corporate tax rate | 25 percent | 25 percent |
| Dividend distribution tax | 5 percent | 5 percent |
| Tax incentives eligibility | High | Medium |
| Audit intensity | Moderate | High |
| Transfer pricing scrutiny | Standard | Enhanced |
| Public disclosure impact | Low | Very high |
| Compliance cost | Lower | Significantly higher |
This comparison shows why most foreign investors prefer private companies unless public funding is required.
Dividends distributed by Nepalese companies are subject to withholding tax.
Flat 5 percent final withholding tax
Applies to both private and public companies
Withheld at source by the Nepal entity
For foreign shareholders, dividends can usually be repatriated after tax under Nepal Rastra Bank approval.
This process is regulated by the Nepal Rastra Bank.
VAT in Nepal is charged at:
13 percent standard rate
VAT registration is mandatory when:
Annual turnover exceeds NPR 5 million
Or voluntary registration is chosen for input credit efficiency
Private vs public status does not affect VAT rates, but compliance expectations differ.
Public companies face:
More frequent VAT audits
Higher penalty exposure
Greater public disclosure risk
Nepal offers targeted incentives to attract foreign investment, administered by the Department of Industry and the Investment Board Nepal.
Incentives may include:
Reduced tax rates for export-oriented services
Tax holidays for priority sectors
Accelerated depreciation
Customs duty exemptions
Private companies generally:
Qualify faster
Face fewer procedural hurdles
Retain incentives more easily
Public companies:
Require additional disclosures
Often need parliamentary or ministerial approvals for incentives
While tax rates may be equal, compliance is not.
A private company typically handles:
Annual tax return
Annual audit
Periodic VAT filings
Withholding tax submissions
A public company must additionally manage:
Quarterly disclosures
Public financial statements
Enhanced statutory audits
Regulatory reporting
Shareholder governance obligations
For foreign investors, this translates into higher advisory and legal costs.
Nepal enforces transfer pricing rules aligned with OECD principles.
Transactions between:
Nepal subsidiary
Foreign parent or affiliates
Must be:
At arm’s length
Properly documented
Public companies are more likely to face:
Detailed transfer pricing audits
Information requests
Comparative benchmarking demands
Private companies still face scrutiny but with greater flexibility.
Despite the added burden, public companies are justified in specific cases.
A public company may be suitable if:
Large-scale infrastructure funding is required
Public capital markets are part of the strategy
Sector regulations mandate public status
Long-term domestic listing is planned
For most foreign service companies, these conditions do not apply.
From an advisory standpoint, over 85 percent of foreign investors entering Nepal choose private limited companies.
The reasons are clear:
Faster incorporation
Predictable taxation
Lower compliance risk
Easier exit or restructuring
Better control for parent companies
Public companies are strategic instruments, not default choices.
Before choosing between private vs public company in Nepal, foreign companies should assess:
Expected revenue scale
Funding roadmap
Sector regulations
Exit strategy
Compliance appetite
Early structure decisions affect tax outcomes for decades.
No. Both private and public companies are generally taxed at 25 percent corporate income tax unless sector-specific rates apply.
Yes. 100 percent foreign ownership is permitted in many sectors under Nepal’s FDI framework.
Not directly. However, compliance costs, audits, and regulatory exposure are significantly higher.
No. Dividend withholding tax is a flat 5 percent for both structures.
A private limited company is almost always the preferred and more efficient option.
For foreign companies, the private vs public company in Nepal decision is less about tax rates and more about strategic efficiency.
Private companies deliver:
Tax certainty
Operational flexibility
Lower compliance friction
Faster scalability
Public companies serve niche purposes and should only be used when strategically necessary.
Choosing correctly at the outset protects profits, timelines, and investor confidence.